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Melco Crown Playing the Waiting Game at Studio City

Table games could make or break Melco Crown's latest project in Macau.

Melco Crown Entertainment(NASDAQ:MLCO) is facing a lot of the same challenges that have plagued its competitors in Macau, but it may be facing an even greater challenge: a lack of table games.

When the company began building Studio City, it thought there would be plenty of table games to go around, even though the project wasn't officially promised any table games when construction began. Investors have known this was a risk for a long time, but with Las Vegas Sands(NYSE:LVS) and WynnResorts(NASDAQ:WYNN) both saying they won't get as many tables as they thought, Studio City could be even worse off than expected.

Melco Crown has shown the ability to design innovative hotels like this one. Source: Melco Crown.

Where Melco Crown stands todayCity of Dreams, Melco Crown's main property, has positioned itself in such a way as to mute the impact of the decline in VIP gaming in Macau. Macau's overall gaming revenue declined 37.4% in the second quarter, and City of Dreams' revenue dropped a slightly lower 32.4% to $654.2 million.

While gaming revenue was down, it was primarily down in the VIP segment, which isn't as high-margin for casinos. Mass-market play only declined 9.9%, so Melco Crown is holding off competition in that segment well.

City of Dreams Manila is also now open. For the quarter, the resort's revenue was $75.0 million, and adjusted EBITDA was $12.6 million. For now, this won't be a big needle-mover for the company, but it was a low-risk project from the start.

Why tables are such a problem in Macau The decline in Macau's gaming revenue is a problem for two reasons right now. It reduces the profitability of existing casinos, but the bigger problem is that six new casinos or expansions will be completed in the next few years. These will increase the supply of gaming, and Macau's government doesn't seem keen on letting resorts fill casinos with table games to the brim, as they had in the past.

Wynn Palace could be a game changer when it opens in 2016. Source: Wynn Resorts.

Wynn Resorts CEO Stephen Wynn has stated that he doesn't really know how many tables Wynn Palace will be allocated when it's completed early next year. Las Vegas Sands has the benefit of being able to move games from Sands Macau, or another casino, if its new resort The Parisian doesn't have enough table games.

If Studio City doesn't get many games when it opens, it could make the resort a money-loser. This is the risk Melco Crown took when it bought a stake in the resort, and it's something investors should be concerned about right now.

Is Melco Crown a great buy or a losing bet? For investors, there are so many unknowns that it's hard to guess where Melco Crown goes from here. I don't see a lot of upside for City of Dreams, especially with the new resorts being built in Cotai right now. On the other hand, the new Studio City resort has upside, but it may not get many table games at all, which is a huge risk.

I think both Las Vegas Sands -- which has a bigger presence in Macau, as well as a property in Singapore -- and Wynn Resorts, which is building Wynn Palace right now, both give investors more upside with lower risk than Melco Crown. Melco Crown has a higher enterprise value/EBITDA ratio of 12.5 than Wynn Resorts (11.6) or Las Vegas Sands (11.0), which also increases the stock's risk profile.

Melco Crown is holding its own against competitors so far. But for investors, value is the name of the game in Macau right now. On that front, it's not a gamble worth taking when there are better bets in town.